STAFF (through translator): Good morning, ladies and gentlemen. First of all, I would like to give the floor to General Liang for his remarks.

GENERAL LIANG GUANGLIE (through translator): Ladies and gentlemen, good afternoon. At my invitation, U.S. Secretary of Defense Leon Panetta is visiting China from 17th to 20th of September. The Chinese have placed great value on Secretary Panetta's visit. It has made deliberate and careful preparations -- (inaudible) -- arrangement.

In addition to Beijing, Secretary Panetta is also scheduled to visit Qingdao and visit PLA navy's North Sea Fleet. With concerted efforts of both Chinese and American sides, Secretary Panetta's visit will reach its objective for the sentiment of building mutual trust and promoting mil-to-mil relations between China and the United States.

This morning, Secretary Panetta and I had a small-scale and large-scale meetings to which we have exchanged ideas and opinions on bilateral and military-to-military relations between our two nations on international and regional situations, as well as other issues of common interests. We have reached some consensus. I'd say the discussion for the entire morning between us has been conducted in a friendly and candid manner.

Our discussion this morning is also the continuation of our meeting with Secretary Panetta during my visit to the United States last May it was brief in the discussions, but to maintain sound and steady development of China-U.S. relations however are significant to the two countries, the two peoples, and to the entire world.

We both believe that both China and the United States must follow the consensus of our presidents in establishing a new model of relationship between the two major countries after we explore the way of developing relations between an emerging nation and an established power, and blazed a trail for enduring cooperation, common prosperity, peaceful and shared progress.

Within the larger picture of the China-U.S. collaborative partnership, the two militaries need to actively forge (a new type ?) of military-to-military relationship and this is based on equality, mutual benefit, and cooperation. It is necessary for the two militaries to have more dialogues, communication, to promote understanding – good trust and deepen exchanges and cooperation so as to constantly raise the level of development of this mil-to-mil relationship.

In addition to that, we also discussed about U.S. arms sales to Taiwan, U.S. rebalancing strategy in Asia Pacific, Diaoyu Islands, South China Sea, cybersecurity, and outer space, et cetera. I believe better communications on the aforementioned topics are very helpful and useful in our mutation understanding of respective conditions and stances. It will also help to reduce suspicions, build trust.

I would say that the discussion with Secretary Panetta this morning has been conducted in a candid, practical and constructive atmosphere which turned out to be productive. That being said, I'd like work together with Secretary Panetta in building upon a consensus and working towards the same direction so as to push forward a sound and steady development of China-U.S. mil-to-mil relationship. Thank you.

SECRETARY OF DEFENSE LEON E. PANETTA: Good afternoon. It is a great pleasure to be here in Beijing. And I'd like to express my deepest thanks to General Liang for his invitation to travel to China.

This is my first visit to this country as secretary of defense, although I've had the opportunity to travel here a number of times in previous capacities. I've long believed that the United States-China relationship requires a long-term perspective. It is measured less by major breakthroughs than by slow, steady progress over time to build the relationship and to work on activities in areas of mutual interest. This progress will not only benefit the United States and China, but help advance peace and stability and prosperity in the entire Asia Pacific region.

My visit this week is an important opportunity to build on the positive momentum that we've established in the U.S.-China defense relationship, which is for me and for our country a very important priority.

Earlier this year, I had the honor of hosting Vice President Xi at the Pentagon. In May, it was my privilege to be able to host General Liang on his visit to the United States. And our commander of the United States Pacific Command, Admiral Sam Locklear, traveled here in June, and I'd like to thank General Liang for helping to make his visit a true success.

Our fundamental goal is to build a U.S.-China military-to-military relationship that is healthy, stable, reliable, continuous, and transparent. I believe that sustained and substantive interactions between senior leaders, along with other forums, such as the United States-China Strategic Security Dialogue, are a very important part of being able to achieve that goal. Through these kinds of engagement, we're strengthening channels of communication to improve mutual understanding, build towards great mutual trust and transparency, and reduce the risk of miscalculation.

To that end, General Liang and I discussed ways to expand our cooperation in some very key areas and had a very candid discussion on a number of issues. -- (inaudible) -- that the United States and China just this week participated in a very successful counter-piracy exercise in the Gulf of Aden. These exercises enhance the ability of our navies to work together to confront the common threat of piracy.

And to build on this positive momentum, I informed General Liang today that the United States Navy will invite China to send a ship to participate in RIMPAC 2014 exercise. This is the world's largest international maritime exercise hosted by the commander of the United States Pacific Fleet.

The general and I also discussed establishing peacekeeping exchanges between our two militaries that would enhance our capabilities in this critical area. The United States in particular hopes that we can learn from China's experience leading U.N. peacekeeping missions in Cyprus and in the Western Sahara.

Even as we expand our cooperative efforts, we also recognize that the United States and China will not always agree. In particular, the United States continues to be concerned by challenges to maritime security in East Asia. But with respect to these current tensions, we are urging calm and restraint by all sides and encourage them to maintain open channels of communication in order to resolve these disputes diplomatically and peacefully.

It's in no country's interests for this situation to escalate into conflict that would undermine peace and stability in this very important region. This has been my consistent message throughout the week.

Today, we also repeated our desire -- and I think General Liang agrees -- that we should have a military-to-military dialogue on the conduct of cyberspace and the growing threat posed to both economic and security interests by cyber intrusions. This is a priority for the United States, and I believe that China, as well, sees the importance of doing this.

And, finally -- (inaudible) -- this visit has been an important opportunity to discuss the United States' ongoing efforts to rebalance towards the Asia Pacific region with our Chinese counterparts. It is -- as I pointed out, a key to that rebalancing is having a constructive relationship with China. And the purpose of that strategy is to renew and revitalize our role, obviously, in this part of the world and to do it in a way that is important to our economic, diplomatic, and security interests.

Now, make no mistake: A stable and constructive U.S.-China relationship is absolutely a vital component of our strategy. We will not achieve security and prosperity in the 21st century without a constructive United States-China relationship, including a stronger mil-to-mil relationship. And we encourage our allies and partners in Asia to deepen their engagement with China, as well.

As two major Pacific powers, the United States and China have the opportunity and the responsibility to work together to give our children a better and more secure future. And my hope is that my visit this week will help us move towards that shared goal.

General Liang, thank you for your hospitality and thank you for the opportunity to have these discussions.

Q (through translator): (off mic) Television. My first question goes to Secretary Panetta. In recent days, the United States has been stepping up military deployments and input in Asia-Pacific region. It has been conducting frequent military exercises with China's neighboring countries. U.S. also is actuating the deployment of regional missile defense systems. My question is, is this a bit contradictory to the very positive statements that have been made on U.S.-China mil-to-mil relations?

My second question goes to General Liang. You visited the U.S. last May, and here you are hosting Secretary Panetta's visit. During the two visits, the both sides reached a consensus in building a new type of mil-to-mil relationship that is based on equality, mutation benefits, and -- (inaudible) -- cooperation. My question is, how do you think U.S. and China will work together in promoting and facilitating this kind of new type of mil-to-mil relations? Thank you.

SEC. PANETTA: Our position is not contradictory at all. The fact is that the United States is a Pacific power. We've been a Pacific power for a number of years, going back almost 70 years. We have always tried to advance the security of the entire region going back to World War II.

And so our purpose in being able to strengthen our presence in this region is to promote greater prosperity, to promote greater security in the Asia-Pacific region. It is both the interests of the United States and China to advance a strong Asia-Pacific region that represents, in many ways, the future in the 21st century.

GEN. LIANG (through translator): Since the beginning of this year, President Hu and President Obama had two meetings, reaching important consensus in building a new model of China-U.S. bilateral relations. As defense leaders, Secretary Panetta and I share the responsibility in implementing the important consensus reached by our two presidents, the need to forge a new type of military-to-military relationship furthering the bigger picture of a new type of bilateral relations. And this new type of mil-to-mil relations should be based on equality, mutual benefit, and -- (inaudible) -- cooperation.

And -- (inaudible) -- share the following -- (inaudible) -- I think we both can work together in doing so. First is that mil-to-mil relationship must share the new type -- new model of bilateral relations. We must place the mil-to-mil relations into the larger picture of our bilateral relations. We need to discard the zero-sum game mentality. We need to have better coordination and cooperation so that we could work together in making -- contributions to the general development of this new model of China-U.S. state-to-state relationship.

Secondary, we need to constantly accumulate and build trust between the two militaries. We need to have a better understanding of each other's national policies and strategy and doctrine. We need to build trust, gradually reduce suspicion, and -- (inaudible) -- constantly to various channels and mechanisms of communications and dialogue. We need to adopt a frequent, open and inclusive mentality let us talk more, coordinate more, and cooperate more, so as to constantly raise the level of trust between the two defense forces.

Three, we need to properly handle disputes and the differences. We need to acknowledge the existing differences and disputes. We need to honestly, therefore, respect each other's interests and major concerns and take concrete and practical measures in constantly reducing the negative factors in the mil-to-mil relations and strengthen the positive side of this relationship.

Fourthly, we need to depend practical -- (inaudible) -- between the two militaries. We have to -- we need to focus on effecting cooperation and deepen our cooperation in non-traditional security areas, such as humanitarian assistance and disaster relief, counter-piracy, medical assistance, et cetera, so that we can constantly -- (inaudible) -- impetus into this new type of mil-to-mil relations.

I -- (inaudible) -- that -- (inaudible) -- from the beginning of this year -- (inaudible) -- engagement plan between Chinese and U.S. militaries have been conducted and implemented very well. So far, we have completed successful working engagement -- (inaudible) -- including -- (inaudible) -- my visit to the U.S. and Secretary Panetta's visit to China. And in the following -- (inaudible) -- until the end of this year, we are still scheduled to conduct over a dozen of engagement programs. And I believe that these concerted efforts of both Chinese and U.S. militaries will be able to implement our engagement -- (inaudible) -- so as to make contributions to the further development of this new type of mil-to-mil relationship.

GEORGE LITTLE: (off mic) of Bloomberg News will ask the final questions.

SEC. PANETTA: With regards to the question on Afghanistan, as I said yesterday, we are concerned with regards to these insider attacks and -- and the impact they're having on our forces. And General Allen obviously has reflected that in the steps that he's taken. He has taken additional steps to do what we can to try to counter these kinds of attacks.

I don't -- I don't think that these attacks indicate that the Taliban is stronger. I think what it indicates is that they are resorting efforts that try to strike at our forces, try to create chaos, but do not in any way result in their regaining territory that has been lost pursuant to what the ISAF and U.S. forces have been able to accomplish in terms of the transition.

Nevertheless, it is a concern. And I rely on General Allen to take the steps that he believes are necessary to protect our forces and, at the same time, I remain convinced that General Allen will continue to pursue efforts to implement the plan that he has put in place so that we can complete the transition to Afghan security and governance and complete our drawdown by the end of 2014.

GEN. LIANG (through translator): (off mic) military has been growing. However, it is in every sense commensurate with the growth of China's economy. To be more specific, the growth rate of China's defense budget, for example, is less than that -- (inaudible) -- GDP -- (inaudible) -- last year, China's defense budget, for example, is 610 billion yuan or in U.S. dollars term, about $100 billion.

The development of China's people’s defense force and its military is certainly out of the -- (inaudible) -- China's development and security. It is totally for the PLA to fulfill its -- (inaudible) -- missions for national defense.

As for the development of aircraft carriers, I want to say that we do not think that this aircraft carrier constitutes a threat to any other third party and was never intended to do so, either.

You asked me about whether we will use the defense capabilities to solve the disputes with Japan over the -- (inaudible) -- Islands and in other disputes. First, I must clarify that the -- (inaudible) -- Islands and its affiliated islands have all along been China's inherent territory since ancient times, by which China holds sufficient historical and (jurisprudential evidence ?). As I discussed with Secretary Panetta in the previous discussions, China placed the -- (inaudible) -- Islands into its coastal defense in the Ming Dynasty, which is in the 13th to 15th century. And it is only after 400 to 500 years later that Japan illegally occupied this island during the First Sino-Japanese War in 1894 to 1895.

Secondly, the -- (inaudible) -- Islands that I want to emphasize is that the current escalation of tension over this dispute is totally caused by the Japanese side. If you talk about who are concerned about this issue, actually Chinese people have every reason to feel more concerned, because it is about China's territory, after all, and the current -- Japanese side should bear the full responsibility for the current escalation of the dispute (inaudible) September, the Japanese government's decision of nationalization of purchase of this island is totally illegal, and it was firmly rejected by the Chinese government and Chinese people.

The Chinese foreign ministry has made various statements in saying that we do hope Japanese government will undo its mistakes and come back to the right track of negotiation. We -- (inaudible) -- continue to follow very closely the development of the situation with regard to this dispute, and we reserve rights for further actions.

Of course, that being said, we still hope for a peaceful and negotiated solution to this issue. And we hope to work together -- (inaudible) -- Japanese government to properly handle this dispute. Thank you.